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Service Tax on Pandal & Shamiana Contractors
17 April, 2013 Ahmedabad :
Service Tax on Pandal & Shamiana Contractors

Majority of the service providers in India are still considered as a part of an unorganised sector. Services like Mandap keeper, outdoor caterers, pandal and shamiana contractors are amongst this sector. Pandal or Shamiana Service was introduced as early as on 01.08.1997, but remained in force only for short time, i.e. it was treated as taxable service only up to 01.06.1998, as later it was on exempted vide Notification No. 49/98-ST dated 02.06.1998. Later the said the Pandal or Shamiana Service were again made taxable w.e.f. 10.09.2004. This service had its share of litigations, as such service includes erection of temporary Mandap for organizing social functions. The moot question which has been at the center stage is that whether such service which involves temporary transfer of goods is liable to VAT or Service Tax. The issue become more interesting after the introduction of the negative list based service tax last year. The debate about its taxability increased as days passed by. Being an unorganized sector, lack of proper representation is bound to be there, which come as a disadvantage in way of deciding the taxability and other related issues.

The CBEC vide its Circular No. 168/3/2013-ST, dated 15.04.2013 has clarified about the levy of service tax on the activity of preparation of place for organizing event or function by way of erection of pandal and shamiana. This circular throws light on the dilemma faced by many that whether such activity is involving “transfer of right to use goods” and hence deemed sale or it is a service.

As per the e said circular “Service” has been defined in section 65B (44) of the Finance Act, 1994, which also includes a ‘declared service’. Activity by way of erection of pandal or shamiana is a declared service, under section 66 E (f) i.e. transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods. The CBEC feels that process of erection of Pandal or shamiana is a reasonably specialized job and is carried out by the supplier with the help of his own labour and accordingly in addition to the erection of pandal or shamiana the service is generally coupled with other services like supply of crockery, furniture, sound system, lighting arrangements, etc. This view of CBEC may not be true in all circumstances and thus this circular deserves to be examined in view of the ground facts.

Transfer of rights to use goods has been discussed at length in many judicial pronouncements. For a transaction to be regarded as “transfer of right to use goods”, the transfer has to be coupled with possession. Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. Vs. CTO [1990 77 STC 182] held that since the effective control and possession was with the supplier, there is no transfer of right to use. This decision of the Andhra Pradesh High Court was upheld by the Supreme Court subsequently (STO 2002 SC 168). In the matter of Harbans Lal vs. State of Haryana – [1993] 088 STC 0357 [Punjab and Haryana High Court], a view was taken that if pandal, is given to the customers for use only after having been erected, then it is not transfer of right to use goods.

BSNL case finds references in the explanatory guide released by the CBEC last year. The Circular has also drawn emphasis on the decision in the case of BSNL Vs. UOI (STO 2006 SC 19) wherein Hon’ble Supreme Court held that to constitute the transaction for the transfer of the right to use the goods, the transaction must have the following attributes:- (a) There must be goods available for delivery; (b) There must be a consensus ad idem as to the identity of the goods; (c) The transferee should have a legal right to use the goods and, consequently, all legal consequences of such use including any permission or licenses required therefore should be available to the transferee; (d) For the period during which the transferee has such legal right, it has to be the exclusion of the transferor: this is the necessary concomitant or the plain language of the statute, viz., a “transfer of the right to use” and not merely a license to use the goods: (e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others.

Applying the ratio of above judgments and on the basis of the test formulated by Hon’ble Supreme Court, the Board has clarified vide above said circular that the activity of providing pandal and shamiana along with erection thereof and other incidental activities do not amount to transfer of right to use goods. It is a service of preparation of a place to hold a function or event. Effective possession and control over the pandal or shamiana remains with the service provider, even after the erection is complete and the especially made–up space for temporary use handed over to the customer.

The board circular states that the Pandal and Shamiana contractors cannot claim relief under Service Tax that they are paying VAT and their activity is deemed sale. The board has made it abundantly clear that services provided by way of erection of pandal or shamiana would attract the levy of service tax. But it appears that the board has exceeded its brief as the issue already stood clarified by their earlier circulars and educational guide. It appears that it has addressed their own cadre officers rather than the trade. It is pertinent to note that implementation of law is equally important. However it has forgotten that the success in collection of tax would depend upon its strict and vigilant implementation. The sectors which are well organized are aware about their responsibilities and pay Service Tax. But with regard to unorganized sectors, mere imposition of tax would not serve the purpose.

Courtesy: From the desk of Monish Bhalla, Founder, www.servicetaxonline.com
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